Why Even Major Label Musicians Rarely Make Money From Album Sales

Once again, I came across an awesome article that breaks down the reality of producing and selling an album on a major label. Even artists who go double platinum may never see a dime from those sales.

The article points out,

"Lyle Lovett have pointed out that he sold 4.6 million records and never made a dime from album sales. It's why the band 30 Seconds to Mars went platinum and sold 2 million records and never made a dime from album sales. You hear these stories quite often."

How crazy is that to think about!? You sell millions of albums but never see a dime.

"Courtney Love famously laid out the details of recording economics, where the label can make $11 million... and the actual artists make absolutely nothing. It starts off with a band getting a massive $1 million advance, and then you follow the money:

What happens to that million dollars?

They spend half a million to record their album. That leaves the band with $500,000. They pay $100,000 to their manager for 20 percent commission. They pay $25,000 each to their lawyer and business manager.

That leaves $350,000 for the four band members to split. After $170,000 in taxes, there's $180,000 left. That comes out to $45,000 per person.

That's $45,000 to live on for a year until the record gets released.

The record is a big hit and sells a million copies. (How a bidding-war band sells a million copies of its debut record is another rant entirely, but it's based on any basic civics-class knowledge that any of us have about cartels. Put simply, the antitrust laws in this country are basically a joke, protecting us just enough to not have to re-name our park service the Phillip Morris National Park Service.)

So, this band releases two singles and makes two videos. The two videos cost a million dollars to make and 50 percent of the video production costs are recouped out of the band's royalties.

The band gets $200,000 in tour support, which is 100 percent recoupable.

The record company spends $300,000 on independent radio promotion. You have to pay independent promotion to get your song on the radio; independent promotion is a system where the record companies use middlemen so they can pretend not to know that radio stations -- the unified broadcast system -- are getting paid to play their records.

All of those independent promotion costs are charged to the band.

Since the original million-dollar advance is also recoupable, the band owes $2 million to the record company.

If all of the million records are sold at full price with no discounts or record clubs, the band earns $2 million in royalties, since their 20 percent royalty works out to $2 a record.

Two million dollars in royalties minus $2 million in recoupable expenses equals ... zero!

How much does the record company make?

They grossed $11 million.

It costs $500,000 to manufacture the CDs and they advanced the band $1 million. Plus there were $1 million in video costs, $300,000 in radio promotion and $200,000 in tour support.

The company also paid $750,000 in music publishing royalties.

They spent $2.2 million on marketing. That's mostly retail advertising, but marketing also pays for those huge posters of Marilyn Manson in Times Square and the street scouts who drive around in vans handing out black Korn T-shirts and backwards baseball caps. Not to mention trips to Scores and cash for tips for all and sundry.

Add it up and the record company has spent about $4.4 million.

So their profit is $6.6 million; the band may as well be working at a 7-Eleven."

Makes you think twice about major labels huh?!

http://www.techdirt.com/articles/20100712/23482610186.shtml

As always,

Keep the Music Alive, and Straighten Your Tie!

Music Streaming: How are the artists paid?

I came across an great article that talks about the many different music streaming sites that are primarily free and how popular they have become. David Harrell breaks down probably the most popular streaming site, Spotify. It is almost scary how small the payout is per play for the artists.

Spotify Per-Stream Payouts August 2009 to March 2011

Smallest: 0.02056 cents
Largest: 1.1456 cents
Average: 0.2865 cents

That means that it would take an artist, on average, 244 plays on Spotify to equal the cut they receive from a .99 ITunes download. Crazy to think about huh?

To read the whole article check it out here

Music Like Water

"Re-building the music industry is going to have to center around really understanding what the fans want and finding an infrastructure that will solidly support artists’ rights" - Trent Reznor

I just read an article about an interview that the CEO of TuneCore Jeff Price did recently with Nine Inch Nails frontman Trent Reznor. He talked about how he was focusing more on scoring films but what really caught my attention was when he began to talk about the future of the music business.

The quote at the beginning of this blog is something that we have been discussing in some of my classes at the Academy of Contemporary Music. I personally believe that in order to survive this new digital age, the music industry is gonna have to find a new structure for paying artist royalties.

The next statement made by Reznor is also an interesting one.

"What I consider, from a consumer point of view, the next good business model, the next thing that makes sense, is if there were mass adoption of music subscription services, like Spotify."

I am reading a book right now called "The Future of Music" by David Kusek and Gerd Leonhard. The authors titled the first chapter, Music Like Water. It is the idea that music will become a utility, like your water and electricity. You will pay a subscription fee once a month and have unlimited access to your music.

Now this book was the first time that I had seriously thought about the true possibility of this type of service. With programs like Spotify become highly popular, people are using these subscription services more and more. Does this mean that digital and physical sales are doomed? I personally don't think so, but you can't rule out the possibility.

I say all of this to make a point. If the industry is going to a more digital avenue for sales and such, we must restructure the way artists are paid. With the current system, artists are not making much off their digital sales. Most of the money is still coming from physical sales. Let me throw some numbers at you to put it into perspective with how artists are paid with an average major label contract.

When an artist has their music on ITunes, an average song costs anywhere from .99 cents to $1.29. For the sake of the argument, and for my lack of math skills, We will say the label has priced your music .99 per song. Apple has an agreement with all who sell their music on ITunes that says they will receive 30% of the revenue. So in this case Apple receives .30 cents per song sold individually. That leaves .70 cents for the label and artist. In most contracts, the label and artists split the digital revenue of the song. That means the artist themselves only make .35 cents per song off ITunes.

Let's say the label gave the band an $100,000 advance to produce the record. They will not see a dime of revenue from the sales until they pay back the advance. If my math is correct, that means the artist must sell 285,714 songs on ITunes before they ever see a dime.

With CD sales, the artist usually sees 10% of the revenue from each sale. In 1995, the average CD cost around $18.95 so the artist received 1.89. The average CD now cost around $10, so the artist receives $1 per sale. As the price of CDs continue to drop, the artists will continue to make less and less.

These are just a few of my thoughts and hopefully they will make you wonder about the direction the industry is currently taking. Leave comments and let me know what YOU think.

As always

Keep The Music Alive, and Straighten Your Tie.

The Fall of MegaUpload- Not about Piracy?

I read an article recently on a blog I read pretty regularly. The article is about how the shut-down of the Megaupload website may not have been all about anti-piracy. Sources are suggesting that the record industry shut down the popular site because the pending release of a new music service known as "MegaBox."

"Megabox had outlined a model that would allow unsigned artists and any other unattached content creators to sell their works through the site and pocket 90% of their earnings. Artists would have also had the option to completely give away songs and still be paid for them through a “Megakey” service. According to its founder, Megabox had potentially discovered way to get around the labels, RIAA and the entire music business."(from article).

Online media sales and the artist royalties is a constant debate right now in the music industry. The labels and artists are looking for new ways to get paid in this new world of digital media.

Take a minute to look over this article and give your opinion on the topic.

Keep the Music Alive, and Straighten Your Tie.